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Mixed Week For The Economy, And Far From Great

Even good news was not that great.

The trade data came in weak for imports - good for GDP but bad news for the economy as declining imports are a sign of economic weakness. Exports held their own indicating the global economy may not be as bad as many think. Incidentally, when I analyze trade data - it is inflation adjusted with oil imports removed.

Literally there has been little growth in imports over the last year. The good news is that the estimated tiny contraction in GDP for 4Q2012 likely was wiped out - and now should be a tiny expansion.

And wholesale sales and inventories were another bad data set coming in literally at recessionary levels (inventory levels at recession levels, and inflation adjusted sales contracting.

There were no other major data released last week, however I use the business activity subindex of the ISM Services (purchasing managers index for non-manufacturing) as a litmus test of the economy. The January number degraded, but is well out of recession territory

The Econintersect economic forecast for February 2012 continues to show weak growth. The underlying dynamics have a whiff of improvement - but the zinger in the data was a supply chain contraction. However all the recession markers have evaporated, and one of our alternate methods to validate our forecast remains recessionary (but still only slightly so). Basically, we are saying that not enough products (crude, intermediate, and finished) were moved for sales or manufacture in February.

ECRI now believes a recession began in July 2012. ECRI first stated in September 2011 a recession was coming . The size and depth is unknown. The ECRI WLI growth index value has been weakly in positive territory for over three months - but in a noticeable improvement trend. The index is indicating the economy six month from today will be slightly better than it is today.

Current ECRI WLI Growth Index

Initial unemployment claims fell marginally from 368,000 (reported last week) to 366,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate (background here and here).

The real gauge - the 4 week moving average - fell marginally from 352,000 (reported last week) to 350,500. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.

Weekly Initial Unemployment Claims - 4 Week Average - Seasonally Adjusted - 2011 (red line), 2012 (green line), 2013 (blue line)

Bankruptcies this Week: General Automotive Company, America West Resources, Sino-Forest Company

Data released this week which contained economically intuitive components (forward looking) were:

  • Rail movements are somewhat improving looking at the 4 week average, but longer term trends are still declining.

All other data released this week either does not have enough historical correlation to the economy to be considered intuitive, or is simply a coincident indicator to the economy.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.